SARS's information gathering powers extended

By the time the South African Revenue Service (SARS) requests information from a taxpayer or third party, it will be too late to start adhering to the Income Tax Act (ITA).

A senior SARS official may request a taxpayer or third party to supply them with relevant material, whether in writing or orally, within a reasonable period. The information provided by a third party will be limited to the records maintained or that should reasonably have been maintained by him.

Relevant material means any information, document or thing that is foreseeably relevant for tax compliance. The Tax Administration Act (TAA) contains wide-ranging definitions for the terms information, documents and things. SARS will be able to obtain full information in relation to the correctness of any tax return, information in SARS’ possession, the determination of a liability any person has for any type of tax, the collection of such liability and determining whether an offence has been committed.

There have been arguments raised in the past over this principle and disputes regarding the lawfulness of SARS' information gathering efforts and its entitlement to sensitive taxpayer-related information occur regularly. Firstly, a person, in respect of whom SARS is requesting information, should be registered as a taxpayer. Secondly, unless SARS can specifically identify the taxpayer in relation to whom it is requesting the information SARS would not be entitled to such information.

The TAA has come into effect on 1 October 2012 and has substantially expanded SARS' information gathering powers. Apparently, SARS got fed-up with all the tussles regarding the scope of its information gathering powers. The Memorandum accompanying the TAA states that SARS' information gathering powers are substantially supplemented and extended by this Act. This in essence is to address the problem that too many requests for information by SARS resulted in extended debates as to SARS' entitlement to certain information.

The crucial difference between the Tax Administration Act and the Income Tax Act is that it empowers SARS to obtain full information in relation to a taxable event. Taxable events are an occurrence which affects, or may affect, the tax liability of a person. Furthermore, the TAA allows SARS to obtain full information to establish the identity of a person for purposes of determining the liability for tax.

The following is noteworthy:

· SARS does not need to specifically identity the taxpayer in respect of whom it seeks information, as long as such taxpayer is objectively identifiable.

· SARS' information request could either be addressed to the taxpayer or to another person, for example a bank, insurance company or credit bureau.

· Relevant material is defined in the TAA as any information, document or thing that is foreseeably relevant for tax risk assessment, assessing tax, collecting tax, showing non-compliance with an obligation under a tax Act or showing that a tax offence was committed.

· Document means anything that contains a written, sound or pictorial record, or other record of information, whether in electronic or physical form.

· Things, includes any corporeal or incorporeal thing.

In many instances it would be virtually impossible for a third party from whom information is required, to determine whether such material might, or might not be, relevant in relation to something as obscured as tax risk assessment.

The TAA further broadens SARS' information-gathering powers by empowering a senior SARS official to require relevant material in relation to an objectively identifiable class of taxpayer.

A senior SARS official could conceivably require a bank to provide SARS with a spread sheet listing all of a client’s information relating to fixed deposits of more than R10m, alternatively all clients that have mortgage loans in respect of residential homes valued at more than R20m.

What does SARS intend to do with all the information?

The strategic plan of SARS is to become data and information rich. This information received from multiple sources will allow SARS to gain a complete economic understanding of all taxpayers across all tax types.

Moving from a transactional- to an economic view of the taxpayer, will enable SARS to detect inaccuracies in declarations and to identify those who have attempted to stay outside the tax net. This will lead to SARS providing a more appropriate and thorough service.

Both taxpayers and third parties should expect increased information requests from SARS. The real difficulty will be to evaluate the relevancy of the information requested by SARS taking into account how broadly the TAA defines certain concepts.

Phrases like may-affect, foreseeably-relevant and reasonable-specificity could mean different things to different people; it depends on which side of the fence you are. Note must be taken to the fact that certain actions taken by SARS may only happen in the most extreme of circumstances. Maybe the debates that so irritated SARS in the past have only just started and will be exacerbated by the implementation of the TAA.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.